Predicting stock market volatility: A new measure

Fleming, Jeff; Ostdiek, Barbara; Whaley, Robert E.

doi:10.1002/fut.3990150303

Cited by 460 publications

(363 citation statements)

References 35 publications

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“…For the conditional mean models, the implied volatility index VIX is constructed as a weighted average of eight close-to-maturity, near-the-money, nearby and second nearby puts and calls written on Standard and Poor's 100 (OEX) index with an average time to maturity of 30 calendar (22 trading) days (for more details see Fleming et al, 1995, andWhaley, 2000). The implied volatility index VIX was converted from annual into daily volatility.…”

Section: Datamentioning

confidence: 99%

Forecasting volatility

Gospodinov

and

Jiang

2006

Journal of Forecasting

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In this paper, we investigate the time series properties of S&P 100 volatility and the forecasting performance of different volatility models. We consider several nonparametric and parametric volatility measures, such as implied, realized and model-based volatility, and show that these volatility processes exhibit an extremely slow mean-reverting behavior and possible long memory. For this reason, we explicitly model the near-unit root behavior of volatility and construct median unbiased forecasts by approximating the finite-sample forecast distribution using bootstrap methods. Furthermore, we produce prediction intervals for the next-period implied volatility that provide important information about the uncertainty surrounding the point forecasts. Finally, we apply intercept corrections to forecasts from misspecified models which dramatically improve the accuracy of the volatility forecasts.

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Section: Datamentioning

confidence: 99%

Forecasting volatility

Gospodinov

and

Jiang

2006

Journal of Forecasting

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“…It is calculated from index options on the S&P 500 index to ensure that the volatility represents a market consensus. Fleming et al (1995) as well as Bekaert and Wu (2000) document an inverse relationship between the VIX and stock market valuations over time, suggesting that it serves as a valid indicator of future stock market performance. 12 In fact, Blair et al (2001) and Fleming (1998), among others, show that accurate forecasts of future returns on stock indices are often based on implied volatilities.…”

Section: Financial Market Volatilitymentioning

confidence: 99%

Efficient hedge fund style allocations: A rules-based model

Drobetz¹,

Kaiser²,

Zimbehl

2012

J Deriv Hedge Funds

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“…Fleming et al 3 , Simons 7 and Whaley 8 examine whether the VIX measures 'fear'. Fleming et al correlate daily changes in the VIX with stock market returns.…”

Section: The Modelmentioning

confidence: 99%

“…Fleming et al 3 investigate whether the implied volatility predicts future volatility over the 1987-93 time interval. They find that the VIX does have some predictive power, although it is a biased estimator of future volatility.…”

Section: Introductionmentioning

confidence: 99%

“…He finds that rises in the VIX are associated with declines in the S&P100: each 1 percentage point rise in the VIX is associated with a reduction of the S&P100 by about 0.7 per cent. Although all these articles address the issue of the relationship of the VIX to other market measures, and the Fleming et al 3 article carefully considers many alternatives, none of these articles explicitly addresses the question of which explanation of the VIX is better -'fear' or forecastor whether they both have some merit. This paper explores the two alternative explanations more directly, using a dataset that covers the 1993-2002 time interval for the VXO, and 1995-2002 for the VXN.…”

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confidence: 99%

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The VIX and VXN volatility measures: Fear gauges or forecasts?

Arak¹,

Mijid²

2006

Deriv Use Trading regul

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This paper examines the behaviour of the ' VXO', previously Practical applicationsShould an alert trader/investor sell options (and hedge) when the VIX (or VXN) rises? If the rise in the VIX reflects mainly investor fear, then the sale of options is potentially profitable. If, however, the rise in the VIX reflects an increase in anticipated volatility, then such selling of options is not potentially profitable. The authors' research indicates that prior to August 1998, the VIX reflected fear and potential profits existed. Thereafter, however, neither the VIX nor the VXN seem to have reflected fear. Therefore, selling options when the VIX and VXN rise does not appear to be a profitable strategy.

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Predicting stock market volatility: A new measure

Cited by 460 publications

References 35 publications

Forecasting volatility

Forecasting volatility

Efficient hedge fund style allocations: A rules-based model

The VIX and VXN volatility measures: Fear gauges or forecasts?

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